Insurance costs could increase with new COBRA requirements

Published 6:00 pm, Thursday, March 5, 2009

Employers say new Consolidated Omnibus Budget Reconciliation Act (COBRA) health insurance provisions - signed into law along with the stimulus package - will make insurance coverage more expensive.

Representatives from STA Benefits Ltd. in Odessa offered a seminar on the new law at a seminar Thursday at the Odessa Country Club.

COBRA insurance coverage employers are federally mandated to offer to employees who have been terminated - voluntarily or involuntarily - from jobs where they had insurance. Before the stimulus package was signed, employees had to pay full cost for the coverage they had been receiving.

Odessa Mayor Larry Melton, who also is chief executive officer of Johnson, Miller & Co. CPAs, said his cost per employee is going to go up, but he's not sure how much yet. Johnson, Miller & Co. has approximately 100 employees in Midland, Odessa and Hobbs, N.M., and the city of Odessa has 800. Melton said COBRA was fine without the changes and everyone got coverage who needed it.

Teresa Nunley, assistant controller at JM Cox Resources, an independent oil and gas firm in Midland, said the COBRA revisions are complex.

"The recordkeeping that's going to be required is going to be very difficult for employers to keep up with," Nunley said. "I don't think the government is set up to take care (everything) … at this point in time. It's only going to apply to 2009 and by the time we get this all done, 2009 will be over. The big question is 'Is it likely to be extended?'"

Western National Bank has 200 employees in the area and provides insurance for all of its staffers. Employees pay nothing and the bank also provides subsidized dependent coverage, Executive Vice President of Human Resources Brenda Denton said.

"With the increase in expense per claim," Denton said, "we may not be able to continue to do that."

Executive Vice President and Chief Operating Officer Lance McDougall said although employers will be able to reduce payroll tax payments and be reimbursed under a revised 941 tax form, it doesn't make up for the claims employers may have to pay during that period. He said this could result in increased insurance costs for the bank.

This would be for employees who have been terminated involuntarily from Sept. 1, 2008 to Dec. 31, 2009 and are not eligible for other group health coverage of Medicare. New requirements have employers paying 65 percent of insurance costs and employees, 35 percent for the first coverage month after Feb. 17 - when the bill was signed.

Employees have 60 days to elect to take COBRA, even if they didn't choose to previously.

If employers have a dual option plan, they must offer employees can switch to a plan paid for by their employer. John M. "Marty" Thompson, STA Benefits Ltd. principal said his consulting firm is advising clients not to offer that option "because it's just going to open up a big can of worms."

If an employee is caught still taking COBRA benefits even after they have gotten insurance through a new job, they face an 110 percent penalty of the subsidy amount they received and weren't eligible for. However, STA Benefits executives said there is nothing in place to police this.

"It's one of those great government wisdoms," STA Principal Steven P. Thompson said.